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The high yield investment case revisited

Guest Post by Olivier Debat (UBP) | High yield CDS indices combine a liquidity advantage, an interest rate advantage (no exposure) and a valuation advantage. Thus, we believe that investors concerned about high yield liquidity, its sensitivity to rates or its valuation should switch to high yield CDS indices to gain exposure to the high yield market.

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Argentina’s debt case: Reading the tea leaves

MADRID | By Luis Martí | You’ll probably know by now that the Court has turned down the Argentinian request to hear an appeal of a lower court decision. The decision established that the unwillingness of Argentina to pay defaulted holdouts, while duly servicing restructured debt, violated the spirit of the pari passu clause. Well, there’s a lot to be said for this interpretation, and a lot against.

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Stress tests: the quality of its judgment

ANIMAL SPIRITS IN WASHINGTON | By Pablo Pardo | Throughout the last two years, bank regulators have identified a number of increasingly exotic assets in the already-full-of-exotic assets banks’ portfolios. For instance, some institutions are accumulating massive amounts of Credit Default Swaps (CDS). At a time when debt spreads are not just falling, but crashing, what is the logic to hedge in such manner? The short answer is: stress tests.

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CDS relax over Ireland, Portugal and Spain

Where there is the European Central Bank’s full capacity of purchasing short-term State debt, there is hope. Even the primary market has opened, although by understandably timid measures, for southern euro zone debt issuers at a sub-sovereign level like State agencies and autonomous regions. The financial City of Madrid expects this window of opportunity to expand and demand of government bonds to improve as it is already happening to banks…

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Lord Turner: “The shadow banking system still is out of our reach”

WASHINGTON | “Show me the factories, then!” Before the audience at the School for International Relations of the John Hopkins University, Adair Turner, or Lord Turner, put in these terms his rebuttal to those who defend that financial innovation betters the real economy, a selected group where we would find the former chief economist at JP Morgan and once FMI’s deputy managing director John Lipsky, who happens to strongly dissent…


German bond protection costs increased the most in May by 20%

Julia Pastor, in Madrid | In a note to investors, Afi’s analysts affirmed on Thursday that German CDS or swap contracts for bond buyers to protect themselves against losses have been under pressure in the last weeks, consequently increasing by 20%, the most among the euro zone’s countries. “It means a change of credit risk perception about Germany, which could be anticipating, as it happened in July and August of…


The Greek swap-opera

LONDON | Half an hour before the deadline passed at 20:00 GMT on Friday, the Greek minister for international economic relations Constantine Papadopoulos confidently told Sky News in London that default had been averted. “The indications we have are that the debt swap seems to be going well. Greece will get the necessary bailout as we have now cleared the major hurdle and can look forward to a new beginning,” Papadopoulos explained, although…


Lose any hope of escaping a stern haircut on Greek debt holdings

By Juan Pedro Marín Arrese, in Madrid | Those hedge funds resisting debt restructuring shouldn’t nurture any hope to save their money. The titles they hold might be governed by international law. But should Greece turn off the tap, counting on CDS to fill the gap might prove a delusion. Credit default guarantors have already warned they will simply fail to respect commitments entered. The ensuing claims might fatten law…

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The giant beast of Credit Default Swaps is getting nervous

NEW YORK | Officials from the International Swaps and Derivatives Association have stated that Greece has not had a ‘credit event’ and credit default swap payments will not be triggered, at least not yet. The body’s decision has reignited the debate over the usefulness of CDS. CDS are a US$32 trillion market, which is more than twice the US gross domestic product and more than twice the national debt. They…